ENTR LAW Test 2

What is the primary purpose of a business contract

establish a legally binding agreement that clearly defines the rights, duties, and expectations of all involved parties

What is the role of common law in contract disputes, and how does it differ from the role of the UCC

Governs contract law governs contract disputes for services, real estate, employment, and intangibles. UCC governs sale of goods

What makes a proposal an offer rather than preliminary negotiation, a statement of future intent, or a general advertisement

An offer proposes definite terms and shows an intention to make a bargain

Why is a price quote generally not an offer

No agreement is made

Who is the offeror and who is the offeree

offeror makes the offer, offeree receives the offer

How can words or conduct communicate acceptance? Is a written acceptance always required

Acceptance can be communicated through words or conduct that a reasonable person would understand as an agreement

Under the common law mirror image rule, what happens when an offeree changes the terms of an offer?

Under the mirror-image rule, acceptance must be on precisely the same terms; changing terms is not acceptance of the original offer

What is consideration? Must the things exchanged have equal monetary value?

Consideration is something of legal value bargained for and exchanged between parties that makes a contract legally binding. Without consideration, an agreement is viewed as an unenforceable gift

How does a voidable contract differ from a void contract or an unenforceable agreement

A voidable contract may be terminated by one party; a void agreement cannot be enforced, and an unenforceable agreement fails to meet requirements for enforcement

Why is a contract made by a minor generally voidable by the minor

Minors lack legal capacity, their contracts are generally voidable by them

When can intoxication affect a party’s contractual capacity? Why is merely drinking alcohol insufficient?

A contract is voidable if intoxication prevents a person from understanding the nature and consequences of the transaction; courts are skeptical of these claims

What is the statue of frauds? When does a sale-of-goods agreement generally require a writing?

The statute of frauds requires certain agreements to be written to be enforceable; sales of goods of $500 or more require a writing

Whose signature generally must appear on the required writing for enforcement against that party? Is notarization or a witness generally required?

The writing must be signed by the defendant and state the parties, subject matter, and essential terms. No notary is required

What is unconscionability, and how can extreme unfairness affect enforcement

Unconscionability is fundamental unfairness that may cause a court to refuse to enforce a contract

Why does authority bind a company matter? What issue arises when a government employee signs an agreement beyond their authority?

A person signing for an entity must have authority. An agreement made without legal authority may be void

What is promissory estoppel? What roles do a promise, reasonable detrimental reliance, and avoidance of in-justice play?

Promissory estoppel is a legal doctrine that allows a court to enforce a promise-even without a formal written contract or traditional consideration. Reasonable detrimental reliance serves as the substitute for consideration and proves the injury

How would you identify a situation in which promissory estoppel may apple even without an ordinary enforceable contract

It may apple when a promise reasonable causes reliance and enforcing it is needed to avoid injustice

What is quantum meruit? When might someone recover for work that benefits another person even though a contract exists?

Quantum meruit is a remedy for a benefit conferred without a valid contract when payment was reasonably expected and keeping the benefit would unjustly enrich the recipient

What value is the focus of quantum meruit recovery? How does it differ from a claim for expected profits?

compensation for the reasonable value of the work, labor, or services already performed, rather than punishing a party or fulfilling a future bargain

What position are expectation damages intended to give the injured party

expectation damages put the injured party in the position they would have been in if the contract had been fully performed

What do reliance damages reimburse? How do they differ from expectation damages

Reliance damages compensate money spent in reliance on the agreement and put the injured party where they would have been if they had never entered the contract

What are consequential damages? Why does foreseeability at the time of contracting matter?

Consequential damages result from the injured party’s unique circumstances and are recoverable only is foreseeable when the contract was formed

What does mitigation of damages require after a breach? What would reasonable efforts to reduce losses look like?

Mitigation requires reasonable efforts to keep damages as low as possible. You cannot sit idly by and let costs or damages accumulate

What is anticipatory breach? How would you recognize an unequivocal refusal to perform before performance is due?

Anticipatory breach occurs when a party makes it unmistakably clear that they will not honor the contract

How can destruction of the subject matter make performance impossible and potentially discharge contractual obligations?

discharges contractual obligations under the doctrine of impossibility when the specific item or property essential to the agreement is ruined

What is specific performance? Why may it be appropriate for a contract involving unique property such as land?

Specific performance orders the parties to complete the deal and is used for land or another unique asset

What is preliminary injunction? How does its purpose differ from a final ruling or an award of money?

A preliminary injunction is an early court order issues before a trial prohibiting conduct during the lawsuit; emergency pause button

What transactions does UCC Article 2 primarily govern? What makes an item a good?

UCC Article 2 governs sales of goods; goods are movable items, except money, securities, and certain legal rights

How do goods differ from services and real estate for purposes of Article 2

Article 2 governs goods, while services and real estate are not goods under Article 2

When an agreement includes both goods and services, how does the primary-purpose test help determine applicable law

Courts determine the contract’s primary purpose to decide the applicable law for a mixed goods-and-services contract

How can a UCC contract exist despite missing terms? What significance for the parties’ conduct and intent have?

A contract does not fail for indefiniteness, even if important terms like price, delivery time, or place of delivery are left open; parties intended to make a binding agreement

Between merchants, when may additional terms become part of an agreement? How do material changes or objections affect the result?

Governing the sale of goods between merchants, additional terms in an acceptance or written confirmation automatically become part of the contract unless the original offer expressly limits acceptance to its own terms, the additional terms materially alter the contract, notification of objection to the new terms has already been given, or is given within a reasonable time after receiving them

What is a shrink-wrap agreement? Why do notice and an opportunity to reject the terms and return the product matter?

A contract whose terms and conditions are printed inside a product’s packaging that a buyer cannot funny read until after they have purchased, opened, and unsealed the item

How can a seller create an express warranty? Must a warranty always be contained in a separate written document?

Making specific affirmations of fact, promises, descriptions, or by providing a sample or model that becomes part of the basis of the bargain for the buyer

How does a specific factual promise, such as a stated product lifespan, differ from general sales praise or puffery?

A specific factual promise creates a legally binding express warranty, whereas general sales praise is considered non-binding opinon that a reasonable consumer would not rely upon

What does the implied warranty of merchantability require concerning a product’s ordinary use?

Requires that a product be reasonably fit for the ordinary purposes for which such goods are used

When does the implied warranty of fitness for a particular purpose apply? What must the seller know, and on whose expertise does the buyer rely?

Implied warranty of fitness for a particular purpose applies when a buyer purchases goods for a specialized, non-ordinary use and relies on the seller to provide a suitable product. Seller must know particular purpose

How do merchantability and fitness for a particular purpose differ?

Implied warranty of merchantability guarantees that a product is fit for its ordinary, everyday purpose, while the implied warranty of fitness for a particular purpose guarantees that a product will suit a specific, non-ordinary use that the buyer communicated to the seller

How can “as is” or “with all faults” language be used to disclaim implied warranties?

Used to notify buyer that they are purchasing goods in their present condition thereby waiving and excluding all implied warranties

Under strict product liability, what must a plaintiff establish about a defect and the resulting injury? Must the plaintiff prove negligence or intent to harm?

Plaintidd does not need to prove negligence, carelessness, or an intent to harm on the part of the manufacturer or seller. The legal focus shifts entirely from the defendant’s conduct to the condition and safety of the product itself

How does a manufacturing defect differ from a design defect or a failure to provide adequate warnings?

Depends on when the flaw happens, how many items it affects, and what must be proven in court

How do consumer expectations for safety relate to whether a product is unreasonably dangerous?

Define whether a product is legally considered “unreasonably dangerous” under the foundational consumer expectations test in products liability law

Which businesses in the chain of distribution may face strict liability for a defective product

Any commercial entity that places a defective product into the stream of commerce can be held liable for resulting injuries, regardless of whether they were personally at fault or negligent

What is assumption of risk, and how might it reduce or eliminate recovery in a product liability case?

A legal defense where the defendant argues that the injured person knew and fully understood the specific danger of a product and voluntarily chose to use it anyway

How may false advertising give rise to a breach of contract claim or the tort of deceit

Depending on whether the false claims become part of the binding agreement or were intentional lies used to trick someone into buying a product

What makes an advertisement deceptive under the FTC Act? What roles do reasonable consumers and materiality play?

If it contains a representation, omission, or practice that is likely to mislead a reasonable consumer and is material to the consumer’s decision to buy or use the product

What is bait and switch advertising? How does an insincere advertised offer draw customers toward a different product?

Deceptive commercial practice where a seller lures in customers with an appealing offer that they have no real intention of selling and steer them toward a more expensive or different product

What is passing off? How does it mislead buyers about the source of goods?

Prevents one business from making its goods or services look, sound, or feel like those of another; tricks consumers by exploiting an established brand’s hard-earned reputation

Why are regular privacy assessments a good practice for protecting consumer data?

Help organizations spot and fix data risks before they harm consumers or lead to legal penalties

When one person starts a business without formally creating an entity, what type of business generally results?

sole proprietorship

What is a flow-through entity? At whose level are its profits generally taxed?

A flow through entity does not pay income tax on its profits; the profits pass through to the owners, who tax at their individual rates

How does a sole proprietor’s personal liability differ from the liability protection generally available to corporate shareholders and LLC members

A sole proprietor is personally liable for all business debts, unlike corporate shareholders and LLC members who generally have limited liability

If a sole proprietorship defaults on a business loan, what assets may be at risk?

Both business and personal assets

What is double taxation, and which type of corporation generally experiences it?

double taxation occurs when income is taxed at the corporate level and again when distributed to individuals; C corps generally experience it

Why might a business elect S corporation status> How does it combine liability protection and tax treatment?

An S corporation provides limited liability to its owners and the tax status of a flow through entity

Why are LLCs often attractive to small businesses? What flexibility do they offer?

An LLC combines corporate limited liability with the flow-through taxation and allows members such as corporations, partnerships, and non-resident aliens

What formation document is used to establish an LLC, as discussed in this course?

A certificate of organization (charter) is used to form an LLC

What does piercing the company veil mean? Why does paying personal expenses from a business account create risk

Piercing the company veil means a court holds LLC members personally liable for the organization’s debts; comingling personal and business assets can create this risk

How do separate accounts, proper records, adequate capitalization, and an operating agreement help preserve the distinction between a business and its owners

Following formalities, keeping assets separate, maintaining adequate capitalization, and having an operating agreement can help avoid grounds for piercing the company veil

Which entity is generally best suited to many investors and freely transferable ownership, and why?

A C corp is generally best suited to many investors because corporate stock can be easily bought and sold

How does a limited partnership accommodate investors who contribute capital without managing the business?

Through a two-tier management and liability structure that separates capital contribution from operational control;

Why might a startup expecting early losses prefer an LLC with flow-through tax treatment over a C Corporation

A startup expecting losses may prefer an LLC because flow-through taxation can allow members to take immediate deductions, while a C corporation is a taxable entity

What does the business judgment rule protect? Why is an unsuccessful decision not necessarily a basis for personal liability

The business judgment rule protects good faith, lawful, conflict free decisions made in the corporations best interests, even if they turn out badly

What is the corporate opportunity doctrine? What issue arises when a CEO takes a company opportunity personally without first offering it to the company?

The corporate opportunity doctrine can be violated when a manager takes an opportunity for themselves or competes against the corporation without its consent

What is the potential disadvantage of a sole proprietorship?

The owner faces unlimited personal liability for business debts

Which entity type typically has perpetual existence

Corporation

Which of the following is true about a sole proprietorship

The owner is personally liable for all business debts

What is the main characteristic of a Limited Liability Company

It offers both limited liabilty and tax advantaged as a flow-through entity

In a C Corporation, how are distributions taxed

Distributions are taxed at both the corporate and individual levels

When might a business choose a Limited Partnership over a corporation

When seeking investment without giving all investors control

What type of corporation avoids double taxation

S Corporation

What is a primary advantage of forming a corporation

Limited liability

What can lead to piercing the corporate veil for an LLC

Commingling personal and business assets

What is the primary role of a special committee in corporate governance

To review transactions that may violate business judgment rules

In contract law, what does consideration refer to

The exchange of value between parties in a contract

Uniform Commercial Code primarily governs which aspect of contracts

Sales and leasing of goods

What is a primary purpose of contracts in business

To create enforceable accountability between parties

What is the mirror image rule in contract acceptance

The acceptance must match the offer exactly

What is the role of an offeror in a contract

the party who makes the offer

Why might a contract be considered unconscionable

It is fundamentally unfair to one party

What is an essential requirement under the statute of frauds

certain contracts must be in writing to be enforceable

What makes a contract voidable

One party has the option to terminate the contract

Which of the following is not typically considered an offer

A price quote to a potential client

Under what circumstance can intoxication lead ot a voidable contract

When a person is unable to understand the nature of the transaction due to intoxication

What is the term for compensation given to an injured party by the court

Remedy

Which of the following is not a principal contract interest that courts protect

Emotional interest

What must be proven for a court to award reliance damages

Proof of a party spending money based on the contract agreement

In the hadley v baxendale case, what type of damages were the lose profits classified as?

Consequential damages

What is the term for a quasi-contract where a party seeks compensation for benefits conferred

Quantum meruit

What does mitigate mean in the context of contract law

To keep damages as low as possible

What type of interes seeks to put a party in the position they would have been in had the contract been fully performed

Expectation interest

WHich type of injunction is issued early in a lawsuit to prevent harm before the final decision

Preliminary injunction

What is a potential remedy called when there is no valid contract but there was a promise and reliance on it

promissory estoppel

In a lease agreement, which party is referred to as the lessor

the landlord

Which law requires that express warranties must be disclosed in simple language

The magnuson moss warranty act

Which of the following best describes strict liability

Defendant is liable regardless of fault for defective products

What is an implied warranty of merchantability

A warranty that goods are fit for ordinary use

Which of the following is not a type of defect in product liability claims

Marketing defect

What does the Eu’s data protection directive primarily focus on

safeguarding personal data and privacy

What is the primary purpose of the USS Article 2

To govern the sale of goods